Saudi Arabia projects wider deficit in 2010

Saudi Arabia said Monday it expects to post a deficit of $18.7 billion in 2010 as the world's largest oil producer expands efforts to support domestic growth with development and job-creation projects.

It will be the second straight year the kingdom runs a deficit. Saudi Arabia has been beefing up its infrastructure and other spending at home this year to weather the global financial crisis, which it entered still flush with cash from the spike in oil prices in 2008.

In a new budget unveiled on Monday, the Ministry of Finance said the government plans to spend $144 billion next year, while revenues are projected at $125.3 billion.

The ministry said the country had a deficit of $12 billion this year. The deficit, the first since 2002, was smaller than the $17.3 billion level that had been projected, most likely the result of higher-than-expected oil prices.

Saudi Arabia increased its spending this year on projects at the grand mosques in the holy cities of Mecca and Medina, food and welfare subsidies and increases in student enrollments in universities as well as scholarships abroad, according to the statement.

Oil accounts for close to 90 percent of government revenues, making it difficult for the Saudis to make precise forecasts due to volatility in global markets.

While Saudi Arabia does not release its price projections, John Sfakianakis, chief economist with Banque Saudi Fransi-Credit Agricole Group in Riyadh, said the budget assumes oil prices will be about $48 a barrel next year, well below current levels of about $70 a barrel.

Sfakianakis said that with the private sector still struggling, the burden is on the government to keep spending to support the local economy.

"They need to spend money locally to keep the economy on a sustainable growth pattern in order to create jobs," he added. "Employment is a key to this."

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Unemployment is estimated at 12-15 percent.

The 2010 budget will continue to focus "on enhancing economic development and improving an investment environment that supports strong and balanced economic growth," said the ministry statement.

The focus continues to be on education, health, social and security services, municipal services, water and sewage services, and roads and highways, said the statement.

New projects include the construction of 1,200 new schools and scholarships to study abroad, primary care health centers and 92 hospitals and sports and social clubs.

The ministry said the overall economy is expected to grow by just 0.15 percent this year a sharp drop from 4.2 percent growth last year. Inflation is projected at about 4.4 percent this year.